Though too much debt and the pre-holiday season bankruptcy were cited as the main reasons for Toys"R"Us’ demise, I can’t help thinking that this story could have ended differently had the company done a better job of listening to its customers.
Sure, Amazon.com with its treasure of data, is a formidable rival, as it is for every retailer. But Toys"R"Us was the best, most respected toy retailer. Listening more closely to its customer data could have changed the ending for this storied retailer.
Toys"R"Us already faced competition from Walmart and Target in 2005, when the publicly traded toy retailer was taken private as a result of a $6.6 billion buyout after Walmart displaced Toys"R"Us as the largest U.S. toy retailer in 1998.
Walmart’s use of toys as a loss leader in the critical holiday shopping season hurt Toys"R"Us, but by focusing on its knowledge of toys, the toy industry and, specifically, its customers, Toys"R"Us could have improved its sales and position in the marketplace.
Though the business intelligence solutions used 10 years to 15 years ago weren’t as powerful or easy to use as the ones we have today, I’m certain that a better understanding of its customers’ needs would have improved revenue and financial performance for Toys"R"Us. And as business intelligence and marketing automation technologies developed and improved over the last decade, Toys"R"Us could have increased its advantage over its rivals, which lacked a focus on the toy shopper’s customer journey.
Thanks to Toys"R"Us’ long-standing loyalty program, the company could have begun to map and monitor its customers’ journeys in order to attain a greater understanding of prevalent shopping patterns. According to research in Statista, Toys"R"Us experienced a drop of more than 30 percent in U.S. store visitors between Autumn 2011 and Autumn 2013. Five years before the current bankruptcy and with machine learning-based business intelligence and marketing automation solutions available, Toys"R"Us could have used its loyalty program data to better understand what was happening to its business. Were customers abandoning Toys"R"Us because of price, product selection, convenience, shopping experience OR other reasons?
Even if price was the primary reason for the decrease in store visits, Toys"R"Us had other ways to compete with retailers that aren't focused exclusively on toys, whether it’s Walmart, Target or Amazon. Though Christmas, Kwanzaa and Hanukkah are in the critical fourth quarter, all the kids I know like receiving toys year-round. Understanding how to cater to this need — for parents, aunts and uncles, grandparents, and of course, kids — could have helped improve the plight of Toys"R"Us.
A real competitive advantage for Toys"R"Us, particularly vis-à-vis Amazon, was the company’s online and offline presence, which enabled shopping online and picking up offline, or vice versa.
In recent years, Toys"R"Us could have used machine learning algorithms to tag each customer event on its website, and then analyze customer journey patterns in order to make insight-driven campaign recommendations. These recommendations could have predicted which customers to target for upsell or cross-sell opportunities in order to increase revenue and customer lifetime value.
By working with a business intelligence solution with machine learning technologies and predictive analytics, Toys"R"Us could have used both structured (rules-based on a given parameter such as most recent purchase) and unstructured (AI technology determines which variable(s) to cluster) machine learning in order to grow its business and increase revenue.
In hindsight, it’s easy to be critical of Toys"R"Us management over the last 20 years. The reality is the technologies available today didn’t exist when the toy retailer's problems began. However, in the 20 years since Toys"R"Us lost market leadership to Walmart, there were missed opportunities to right the ship and restore this great toy brand.
I’m just sorry that my three-year-old son won’t have the memories of and feelings for Toys"R"Us that I do.
Roei Livneh is the founder and CEO of Curve.tech, a provider of machine learning-automated insights for businesses.
Related story: Toys"R"Us Will Sell or Close All U.S. Stores